The 2 per cent tax sting on high-income earners will hit about 400,000 Australians earning more than $180,000 a year from July 1 until mid-2017.

The budget targeted other tax benefits including the Dependent Spouse Tax Offset and Mature Age Worker Tax Offset, and will raise the Medicare levy threshold for families, to bring in an extra $1.1 billion over four years.

The government will also tax motorists more heavily by reintroducing fuel excise indexation, saving $2.2 billion over four years, which will go towards spending on roads.

The so-called deficit levy on high income earners, which in the weeks leading up to the budget reportedly caused tension in Coalition ranks, will help bring in an extra $3.1 billion over four years.

The levy, which will operate until the end of fiscal 2017, means people with taxable incomes of $200,000 will pay an extra $400 a year in tax and those on incomes of $300,000 will pay an extra $2,400 a year.

The Greens and Labor say they won’t support the deficit levy. The Greens are against the tax because it is temporary. It wants the tax system redesigned so high-income earners have to pay more tax permanently. Labor has said it will not support it because it’s a broken promise by
Tony Abbott
.

Some current and past Liberal politicians including former treasurer
Peter Costello
have also criticised the debt tax, saying it will damage Mr Abbott’s credibility with voters. The levy has also been condemned by business groups, including Business Council of Australia chief
Jennifer Westacott
, who said it would place a heavier burden on workers and hinder productivity. Tax experts had also warned the levy could entice some into tax avoidance to prevent them from falling into higher, marginal-tax brackets. The levy puts people earning over $180,000 into a top marginal tax rate of 49 per cent, after the 1.5 per cent Medicare levy and a 0.5 per cent National Disability Insurance Scheme levy is taken into account.

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To prevent high-income earners from taking advantage of fringe benefits to avoid paying the 2 per cent levy, the fringe benefits tax (FBT) rate will increase to 49 from 47 per cent from April 1 next year, until March 31, 2017, to align with the FBT income year. But the caps will not apply to tax-exempt charities and not-for-profits.

The government will also abolish the Dependent Spouse Tax Offset from July, which will save $320 million over four years.

It will abolish the Mature Age Worker Tax Offset from July, to save $760 million over four years. It will instead encourage older Australians to work through direct payments and incentives. From July 1, a payment of up to $10,000 will be given to employers who hire a worker aged 50 or more who has been unemployed for at least six months.

The government will also increase the Medicare levy, low-income threshold for families from the 2013-14 income year, saving $48 million over four years. The threshold for couples with no children will rise to $34,367 and the additional amount of threshold for each dependent child or student will lift to $3,156. The Medicare levy, low-income thresholds for individuals and pensioners has already increased in line with inflation.

Re-introducing fuel excise indexation will save $2.2 billion over four years (the savings would have been higher were it not for $1.8 million being spent on ethanol production grants and cleaner fuel grants). Economists and tax experts have said
John Howard
’s 2001 decision to freeze fuel excise indexation was short-sighted, and support the fuel excise rising annually in line with inflation, as long as the poor and small businesses are compensated. The rate has stayed at 38.1¢ a litre since 2001.